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August 9, 2013

What Really Entices Customers to Pay More

Harvard Business Review blogger Ty Montague says value comes from telling customers a convincing story about what a business can mean to them

When seeking new clients, financial advisors like to impress their prospects with boatloads of facts, figures and data. But are they telling a good story that will convince potential clients on an emotional level that they can make a difference in their lives?

According to one of the most popular and commented upon articles this week in the Harvard Business Review, “If You Want to Raise Prices, Tell a Better Story,” Ty Montague writes that the ability to sell a product or service comes from telling a narrative that reveals something meaningful and inspires action.

While Montague speaks in terms of product sales, his lesson certainly applies as well to the sale of a financial advisor’s services to a new customer. Most interestingly, he examines how a well-told story can actually help a business raise its prices.

First, Montague breaks down the concept of pricing strategy by laying out the four traditional pricing methods:

Bottom up: Calculate the cost of everything that goes into making a product, and add a fair margin on top.

Sideways in: Analyze and adopt the price of competitors' products.

Top down: Target a demographic or economic segment, then engineer the product to meet that price.

Dynamic: Use a complex, real-time calculation to gauge supply and demand, usually with the help of an algorithm.

But then he goes on to describe a fifth, lesser-known method, which he calls “story analysis,” meaning an analysis of a product's ability to fulfill a profound human need and to tell a story that gives customers' lives richer meaning.

“In a world of abundance, what your product does for your customers is important, but not nearly as important as what your product means to them,” Montague writes. “And this second part — the story of your product — is what yields the greatest pricing power of all.”

A Plastic Banana, a Cracked Ceramic Horse Head

Montague uses the example of New York Times Magazine columnist Rob Walker’s 2006 experiment in what makes one object more valuable than another. Walker and a friend bought random, virtually worthless objects — a lost hotel room key, say, or a plastic banana — at tag sales and thrift shops for a couple of dollars or less. Then Walker hired a group of writers to each write a short story that described one of the objects and placed it in a human context.

When Walker went on eBay and put the objects, plus their stories, on sale, the value of the objects rose 2,700%.

“That's not a typo: 2,700%,” Montague writes. “A miniature jar of mayonnaise [Walker] had purchased for less than a dollar sold for $51. A cracked ceramic horse head purchased for $1.29 sold for $46. The value of these formerly abandoned or forsaken objects suddenly and mysteriously skyrocketed when they were accompanied by a story.”

In short, Walker's experiment (more fully described on SignificantObjects.com) is a reminder of how the concept of value works in the human brain — and a good lesson for any business in the value of storytelling.

“A can opener is a can opener is a can opener until it is a can opener designed by Michael Graves and a part of the permanent collection of the Museum of Modern Art,” Montague concludes. “Suddenly, these objects are part of an inspiring narrative — one that I can use to reveal something meaningful about myself to others. That's something I am willing to pay for.”